Hull:Options,Futures,andOtherDerivatives,NinthEditionChapter13:IntroductiontoBinomialTreesMultipleChoiceTestBank:Questions1.Thecurrentpriceofanon-dividend-payingstockis$30.Overthenextsixmonthsitisexpectedtoriseto$36orfallto$26.Assumetherisk-freerateiszero.Aninvestorsellscalloptionswithastrikepriceof$32.Whichofthefollowinghedgestheposition?A.Buy0.6sharesforeachcalloptionsoldB.Buy0.4sharesforeachcalloptionsoldC.Short0.6sharesforeachcalloptionsoldD.Short0.6sharesforeachcalloptionsold2.Thecurrentpriceofanon-dividend-payingstockis$30.Overthenextsixmonthsitisexpectedtoriseto$36orfallto$26.Assumetherisk-freerateiszero.Whatistherisk-neutralprobabilityofthatthestockpricewillbe$36?A.0.6B.0.5C.0.4D.0.33.Thecurrentpriceofanon-dividend-payingstockis$30.Overthenextsixmonthsitisexpectedtoriseto$36orfallto$26.Assumetherisk-freerateiszero.Aninvestorsellscalloptionswithastrikepriceof$32.Whatisthevalueofeachcalloption?A.$1.6B.$2.0C.$2.4D.$3.04.Thecurrentpriceofanon-dividend-payingstockis$40.Overthenextyearitisexpectedtoriseto$42orfallto$37.Aninvestorbuysputoptionswithastrikepriceof$41.Whichofthefollowingisnecessarytohedgetheposition?A.Buy0.2sharesforeachoptionpurchasedB.Sell0.2sharesforeachoptionpurchasedC.Buy0.8sharesforeachoptionpurchasedD.Sell0.8sharesforeachoptionpurchased5.Thecurrentpriceofanon-dividend-payingstockis$40.Overthenextyearitisexpectedtoriseto$42orfallto$37.Aninvestorbuysputoptionswithastrikepriceof$41.Whatisthevalueofeachoption?Therisk-freeinterestrateis2%perannumwithcontinuouscompounding.A.$3.93B.$2.93C.$1.93D.$0.936.WhichofthefollowingdescribeshowAmericanoptionscanbevaluedusingabinomialtree?A.Checkwhetherearlyexerciseisoptimalatallnodeswheretheoptionisin-the-moneyB.CheckwhetherearlyexerciseisoptimalatthefinalnodesC.CheckwhetherearlyexerciseisoptimalatthepenultimatenodesandthefinalnodesD.Noneoftheabove7.Inabinomialtreecreatedtovalueanoptiononastock,theexpectedreturnonstockisA.ZeroB.ThereturnrequiredbythemarketC.Therisk-freerateD.Itisimpossibletoknowwithoutmoreinf...
